For someone with a pattern of financial chaos, a first step toward better money management is getting organized. This requires creating a clear picture of where you’ve been and where you are in terms of income, expenses, and debt. To accomplish this, you will need to set up a bookkeeping system to track your income and expenses and pay bills.
This task can be overwhelming and can stop people cold before they even get started on controlling their spending. As a result, I recommend using the services of a professional bookkeeping firm.
Work with your bookkeeper to do the following:
• Set up a computerized bookkeeping system appropriate to your needs. I recommend QuickBooks Online.
• Document your spending for the past twelve months.
• Develop and print a month-by-month spending plan for the upcoming year.
• Have your bookkeeper print a monthly report of your actual spending, and meet with them every month to review that report and compare it to the spending plan.
For those with a severe pattern of overspending, I suggest setting up two bank accounts. The first, for paying bills, is accessible only to your bookkeeper. This means your bookkeeper needs to be of the highest integrity, probably a CPA firm that has strict ethical and regulatory oversight. Paychecks or other designated income will be directly deposited into this account wherever possible. Bills will go directly to the bookkeeper and be paid from this account. A designated amount for discretionary spending is transferred regularly to a second account, which is freely accessible to you.
If you are not comfortable turning over check-signing power to someone else, it can also work to require two signatures—yours and your bookkeeper’s—on the bill-paying account so neither can spend money without the consent of the other. This only works as long as your bookkeeper is clearly the primary authority on the account, with the power to say “no” and make it stick.
In setting up the bookkeeping system, it is important to be as thorough as necessary but not needlessly complicated. The key is to have a system that isn’t too intimidating and to have a bookkeeper who is willing to explain it. One of the goals of this process is to help you learn how to manage your finances, which for most people includes learning how basic bookkeeping works and how to understand financial reports.
There are advantages to using a software program such as QuickBooks Online. Both you and your bookkeeper can easily access the information, it is easy to prepare various types of reports, and the program is compatible with tax-preparation software.
Setting up a system that works well may take some trial and error. It is important to be patient and to make a commitment to learn the system and work in cooperation with the bookkeeper. Sometimes what a client perceives as a problem with the system is, instead, the client’s reluctance to use the system.
Part of the value of working with a bookkeeper is getting help with the daunting task of setting up a system to manage cash flow. Another benefit is having your financial information clearly laid out by someone who is objective. Simply acknowledging the reality of your situation can be an important step toward financial balance.
Plain, old-fashioned bookkeeping may seem out of sync with my commitment to integrated financial planning, with its emphasis on emotions and building a healthy relationship with money. Yet the whole idea of “integration” is to combine the emotional aspects of money and the factual, exterior aspects. One of those important exterior tools is an accurate set of books.
